World’s 2nd Largest Economy Stumbles

Yesterday you may have seen reports of how badly things are going in Japan. With monstrous export slumps and a burgeoning oil crisis, Japan’s numbers resemble those of 1974. In the 80s, as Japan flooded the USA with exports, investing heavily in American companies and high-profile American real estate, no one seemed to care. Japanese products were better, cheaper and readily available. We seemed resolved to it as we filled our lives with Sony, Mitsubishi, Panasonic, Toshiba, Hondas and Toyotas.

If misery loves company, Japan stands ever nearer to us in our sack race to the bottom as world economic powers — a fact that makes our domestic financial crises ever more menacing. Other global uber economies–the folks we borrow from–are tanking as well.

In the late 80’s Korean electronics appeared in the U.S. and like early Japanese offerings, were crude compared to Japanese products. Still, they had huge price advantages. Content to buy up cheap, obsolete Japanese patents until their own R&D became viable, Korean quality quickly improved. Korea eventually did to Japan what Japan had done to us. Korean electronics are everywhere. The Korean auto industry followed a similar trajectory. Their first product offerings weren’t impressive. Koreans met quality issues on their cars and provided warranties no American manufacturer could match. This, combined with huge price advantages, put more Hyundai and Kias in American garages.

Also in the late 80s, Chinese garments started to appear. Crude at first, they were cheap as hell and their quality rapidly improved. By the new millennium, Chinese electronics had evolved from hand-held trinkets to computers, components, consumer electronics and a vast array of illegal knock-offs. Nowadays, just about everything–including American Flags come from China. China did to Korea what Korea had done to Japan, it’s just not as far along. Keep an eye on this. Without China, WalMart would likely fail.

The two biggest potential growth markets for automobiles are where the most people are (China and India). Mass transit is primitive if available at all. People still ride bikes, mopeds and scooters.

Emission standards are routinely skirted in these regions, making “responsible” American manufacturers far less viable there, due to our increased fixed/regulatory costs. To compete in China and India, every car maker will need factories closer to where the demand is–a fact Honda realized in the U.S decades ago and is now pursuing in China.

So, along with the U.S., Japan appears to be suffering from their own success. One difference is Japan’s heavy reliance on exports. Persistently weak domestic spending is hurting Japan, even more than it’s hurting the USA. U.S. credit problems haven’t hurt Japan as much as it has certain other U.S. trade partners.